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Car Loans For Students in Canada

Car Loans For Students in Canada

Owning a car can be extremely valuable for college students and recent graduates. Studies show that over 75% of students have a car during college, and most graduates purchase one within a year of finishing school. With the demands of getting to campus, commuting to jobs and internships, and basic mobility, having your own set of wheels makes life much easier.


However, getting approved for an auto loan as a student can be challenging. Most undergrads have little credit history, moderate income from part-time jobs, and existing student loan debt. These factors make lenders hesitant to approve financing.


The good news is that with proper preparation, Canadian students can get car loans with reasonable interest rates and terms. This guide will walk through the entire process step-by-step, from building your credit score to negotiating with dealers at the lot. With diligence and smart planning, you can get the vehicle you need to succeed during school and beyond.

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Why a Car Can Be Valuable in College

Having your own car as a student can provide many benefits that enhance your college experience. While cars are certainly not essential on campus, they allow much greater freedom and convenience in a number of ways.

One major advantage of having a car in college is being able to access off-campus jobs and internships. Public transportation may not reach everywhere, so having your own set of wheels makes it easy to get to work sites further away. This gives you many more employment and career-building opportunities.

Owning a car also makes it easier to explore the area around your college and have an active social life. You can drive to concerts, sporting events, shopping malls, restaurants, parks, and other attractions. Relying solely on mass transit can be limiting for recreational activities.

Finally, a car allows you to conveniently run errands and shop for necessities. Stocking up on groceries and personal items is much simpler with a vehicle to transport larger loads. You gain freedom to shop at stores not reachable by bus or train.

While cars come with expenses, the benefits often make it a worthwhile investment if you can afford it. The independence and flexibility a vehicle provides can greatly improve your student lifestyle.

 

Start Building Your Credit History

Your credit score is one of the most important factors lenders look at when deciding whether to approve you for a car loan. Your credit score provides a numerical representation of your creditworthiness based on your borrowing and repayment history. Scores generally range from 300 to 850.

In general, the higher your credit score, the better your chances of getting approved for a car loan at a low interest rate. Many lenders view scores below 600 as subprime. Applicants with scores in the good to excellent range (670 and above) stand the best chance of approval.

As a student just starting out, you may not have much credit history established yet. Here are some tips to start building a strong score:

 

  • Get a secured credit card – These require a refundable security deposit that becomes your credit limit. Making payments builds positive payment history.
  • Become an authorized user on someone else’s card – Getting added to a parent’s account can give your score a boost from their good history.
  • Pay all bills on time – Payment history is the biggest factor in your score. Set up autopay to avoid missed payments.
  • Keep credit card balances low – High balances compared to your limit can hurt your credit utilization ratio.

 

Checking your credit reports and FICO score frequently enables you to monitor your progress. Maintaining diligent money management habits now will pay off tremendously when you apply for a car loan.

 

Save Aggressively for a Down Payment

Having a substantial down payment is one of the best ways to improve your chances of getting approved for a car loan as a student. Lenders like to see that you’ve saved up some of your own money rather than needing to finance the entire purchase price.

For a new car, experts recommend having a down payment of at least 20% of the vehicle’s price. On a $20,000 car, that would mean saving $4,000 for the down payment. For a used car, aim for a 10% down payment if possible.

To save up an adequate down payment, start setting aside a portion of your income as soon as possible. Calculate your target down payment amount, then divide that by the number of months until you need it. For example, if you need $3,000 in 1 year, you’d need to save $250 per month.

Here are some tips for students to boost their savings:

 

  • Get a part-time job if you don’t already work
  • Set up automatic transfers from your paycheck to savings
  • Limit eating out and other discretionary spending
  • Ask relatives for gift contributions toward your car fund
  • Participate in the sharing economy by driving for a rideshare app, renting out extra space, etc.
  • Sell unused items online or hold a garage sale

 

Building up your down payment fund will demonstrate financial responsibility and improve your chances of getting approved for a competitive student car loan.

 

Apply for Student Car Loans

When you’re ready to start shopping for a car loan, one of the first steps is to research and apply to lenders that offer student financing options. Here are some of the main places to consider submitting loan applications as a student:

 

Banks and Credit Unions

Traditional banks and credit unions often have special auto lending programs aimed at students, especially those they have existing relationships with. For example, the bank where you have a checking account may be able to pre-approve you for an auto loan based on your history with them. Rates can be competitive, and credit unions in particular may offer discounts for members.

 

Manufacturer Financing

Many major automakers like Ford, GM, Toyota, and Honda offer special financing promotions for recent graduates and students. These can include lower interest rates, delayed first payments, or cash rebates. Dealer financing through the manufacturer’s captive finance arm should be one of your options.

 

Online Lenders

Online-only lenders like Lightstream, PenFed, and LendingTree have emerged as major auto loan providers, including for student borrowers. They use factors like income potential and education level to make credit decisions, not just credit scores. Pre-approval through an online lender can give you leverage when negotiating with dealers.

Cast a wide net and apply to multiple sources when seeking a competitive student auto loan. Compare all offers side-by-side while factoring in rates, fees, terms, and eligibility criteria.

 

Find a Cosigner If Needed

Getting approved for a car loan with little or no credit history can be challenging. One of the best ways to improve your chances is to add a creditworthy cosigner to your application. A cosigner agrees to be equally responsible for repaying the auto loan if you can’t make the payments yourself.

Because the lender can look to the cosigner’s income, assets, and credit score, adding them significantly improves the likelihood of approval. Ideally, your cosigner will have a long credit history, high income, excellent payment record, and solid credit score.

Good cosigner candidates include your parents or family members, a mentor, or another trusted adult in your life. Be sure to have an open discussion about expectations before making the commitment. They are putting their credit on the line, so treat the responsibility seriously.

If you don’t have a cosigner available, don’t lose hope. Some lenders offer student car loan programs that don’t require a cosigner. You can also improve your chances by saving a larger down payment, limiting the loan amount, choosing an affordable used car, and shopping around for lenders who work with student borrowers.

 

Evaluate Affordability Carefully

Before taking out a car loan, you need to honestly evaluate whether you can realistically afford the payments. Taking on too much debt as a student can sabotage your finances for years.

Start by making a detailed list of your total monthly expenses—rent, utilities, groceries, entertainment, etc. Be meticulous and include every recurring cost you pay. This will give you a clear picture of your overall spending.

Next, look at your income sources. Do you have a part-time job? Parental support? Savings? List out all your regular income streams.

Compare your total expenses to your total income. The difference is what’s available for a car payment. Be conservative here—don’t max yourself out.

Set a realistic car budget that creates some breathing room in your finances. Only look at cars and car loans that fit within your predetermined budget. Going over budget on a car as a student can quickly create financial distress.

If your budget is very tight, seriously consider buying a cheaper used car for cash if possible. While having a car loan builds credit, defaulting on it destroys credit. Don’t take on more than you can handle.

 

Understand Key Loan Terms

When taking out a car loan as a student, it’s important to understand the key terms that determine affordability.

Interest rates have a big impact on your total loan cost. Rates are based on your credit, down payment, and other factors. Students often get higher rates due to lack of credit history. Compare options to find the lowest rate possible.

Watch out for fees like origination fees and prepayment penalties. These can add hundreds or thousands to your total repayment cost. Try to minimize fees when possible.

Loan length also affects affordability. Longer terms like 72-84 months lower the monthly payment but increase the total interest paid over the life of the loan. Find the shortest comfortable term you can manage.

New car loans tend to have lower rates but you’ll pay more in depreciation. With used cars, rates are higher but the vehicle has already taken the big depreciation hit. Carefully weigh the pros and cons for your situation.

Crunch the numbers to see the total interest cost and monthly payments for any loan you’re considering. Make sure it aligns with your budget and doesn’t put you in a risky financial position.

 

Shop Around for the Best Deal

One of the keys to getting the best rate on a student car loan is to shop around and compare offers from multiple lenders. While it may seem easier to just finance wherever you find the car you want, taking the time to explore all your options can really pay off.

Start by getting pre-qualified with banks, credit unions, and online lenders that offer student auto loans. This allows you to compare rates and terms side-by-side. Pay attention to factors like:

 

  • Interest rate
  • Length of loan term
  • Whether the rate is fixed or variable
  • Required down payment percentage
  • Early payoff penalties

 

Many lenders tout special auto loan programs for students, but look closely at the fine print. You want a competitive rate without a lot of fees or restrictions.

Don’t forget to check financing offers from dealerships too. They may be able to beat rates you find elsewhere, especially if you have an established relationship with the dealer. But watch out for add-ons that increase the total price, like extended warranties, GAP insurance, or service contracts.

Ultimately, opening several loan offers allows you to negotiate the best overall deal. Let lenders know you’re shopping around and give them a chance to sweeten the terms if needed. Taking this extra step can save you thousands over the life of your loan.

 

Have a Strong Down Payment

Having a substantial down payment will give you significant leverage when negotiating the final price of the vehicle. Most experts recommend putting at least 20% down if you are purchasing a new car, or 10% if you are buying used. The more money you are able to put down, the lower the loan amount will be.

A larger down payment signals to the dealer and lender that you are financially responsible and able to manage your money wisely. It shows commitment on your part to follow through on the purchase. With a sizable down payment in hand, you’ll be taken more seriously during price negotiations.

In addition to improving your negotiation stance, a bigger down payment also lowers the amount you’ll need to finance. This helps by reducing the monthly payment amount and total interest paid over the life of the loan. The most financially prudent option is to make as large of a down payment as you can afford.

Start saving early and be diligent. Every dollar you sock away further builds your down payment fund. Developing smart money habits like budgeting will help you reach your savings goals faster. Have your down payment ready in hand before starting the shopping process.

 

Inspect and Test Drive Thoroughly

When buying a used car, it’s critical that you inspect it carefully before purchase. Here are some tips for inspecting a used vehicle:

 

  • Check the exterior of the car for dents, scratches, mismatched paint, and rust. Look for signs of an accident.
  • Examine the tires and check tire tread depth. Uneven wear can indicate suspension or alignment issues.
  • Look under the car for leaks, damage, or rust on the undercarriage.
  • Open the hood and check fluid levels, hoses, belts, battery, and engine for leaks or damage.
  • Inspect the interior thoroughly. Look for worn seats, stains, rips, odors, and other signs of wear.
  • Make sure all electronics, lights, climate control, wipers, and seat adjustments are working.
  • Review maintenance records if available.
  • Have a mechanic inspect the vehicle before purchase.

 

When test driving a used car, pay close attention to these things:

 

  • Listen for any odd noises when starting, idling, accelerating, or braking.
  • Test acceleration and power on highways, hills, and in stop-and-go traffic.
  • Check that brakes feel responsive without pulling, vibration, or squealing.
  • Make sure steering feels precise and aligned without drifting.
  • Test all safety features like airbags, seatbelts, and ABS brakes.
  • Check blind spots and visibility out of all windows.
  • Cycle through all gears to ensure smooth shifting.
  • Drive at highway speeds to test stability and comfort.

 

Taking the time to thoroughly inspect and test drive any used vehicle can help you avoid expensive problems down the road.

 

Negotiate the Price Aggressively

One of the keys to getting a good deal as a student buyer is being willing to negotiate aggressively on the vehicle price. Don’t be afraid to make an offer below the asking price if you’ve done your research and believe the car is overpriced.

Walk onto the dealership lot armed with third-party pricing data from sources like Kelley Blue Book and Edmunds. These sites can give you an accurate picture of what a given used vehicle is worth based on its year, make, model, mileage, equipment and overall condition.

Use this pricing information during your negotiations with the dealer. Offer a few hundred or even a thousand dollars below the fair market value price range for the car. The dealer may counter, but you’ll have set the tone that you know what the car is worth and won’t overpay.

Having been preapproved for financing also gives you leverage in price talks. Make it clear you have financing lined up at competitive rates. If the dealer senses you are serious and ready to buy at the right price, they may become more flexible.

Remaining firm on the price while projecting confidence can lead to substantial savings off the sticker price. Do your homework on fair value, make an initial offer below asking, and use your financing lined up to ultimately negotiate the best possible deal.

 

Review All Paperwork Carefully

After you’ve negotiated the ideal sale price and loan terms, don’t let your guard down yet. It’s absolutely essential that you carefully review all paperwork before signing anything. This ensures the deal you verbally agreed to matches what’s in writing.

Verify that the sale price, APR, loan length, down payment, and monthly payments are exactly what you negotiated. Comb through the fine print for any hidden fees or changes. Don’t feel rushed – take your time and understand everything you’re signing.

It’s also important to fully understand your legal obligations under the loan agreement. You’ll likely have to maintain full coverage insurance on the vehicle for the entire loan term. Missing payments can negatively impact your credit and lead to penalties or repossession. Review the lender’s policies on late payments and defaults.

While reviewing paperwork is tedious, it protects you from getting locked into an agreement you didn’t fully consent to. Don’t leave the dealership until every single detail aligns with the terms you shook hands on.

 

Maintain Good Financial Habits

Once you have secured financing and purchased your vehicle, it’s important to maintain good financial habits to keep your student car loan affordable. Here are some tips:

Make all your monthly payments on time. Payment history makes up a significant portion of your credit score. When you make on-time payments each month, you demonstrate responsibility and reliability as a borrower. This will help improve your credit over time, opening up opportunities to refinance your loan at lower interest rates down the road.

Build an emergency fund. Having cash reserves is essential when you’re on a tight student budget. Aim to save at least 3-6 months’ worth of car loan payments and insurance premiums. That way you can continue making payments even if you lose your income source temporarily.

Refinance at a lower interest rate. As you build credit history and your score increases, you may qualify for better loan terms. Consider refinancing your student car loan at a lower interest rate to reduce your monthly payments. Shop around every 6-12 months to find the best offers.

Stick to a detailed budget. Beyond just your car loan payment, map all of your income sources and expenses. Look for areas to trim spending so you can put more money toward debt repayment and savings. Having a plan keeps your finances on track.

 

Conclusion

Getting a car loan as a student is very achievable with the right preparation and diligence. By starting early to build your credit, saving aggressively for a down payment, finding the best loan for your situation, negotiating a good deal, and maintaining responsible money habits, you can get approved for auto financing that fits your budget.

The key things to remember are:

 

  • Build a credit history with student cards and on-time payments
  • Save 20% or more for a down payment to get better loan terms
  • Shop multiple lenders to compare rates and qualify for discounts
  • Add a cosigner if you need help getting approved
  • Negotiate the vehicle price and financing terms for the best deal
  • Make all your payments on time to improve your credit score

 

By following this guide and staying focused on your financial goals, you can end up with an affordable car loan that moves you forward during your college years and beyond. Don’t let a lack of credit hold you back – with smart planning, Canadian students can qualify for the transportation they need to succeed.

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Questions About Car Loans For Students

Yes, it is possible for students in Canada to get car loans, though qualifying may be more challenging than for non-students. Some options to explore include student-specific car loan programs from lenders like TD Bank and RBC, loans from credit unions, financing from dealerships, or loans with a parent/guardian as a co-signer. Be prepared to provide proof of income and meet credit requirements.

Some options for Canadian students seeking auto financing include:

 

– **Student car loans:** Offered by banks and credit unions specifically for students aged 18-25. May offer discounted rates and flexible repayment.

 

– **Loans with a co-signer:** Adding a creditworthy co-signer like a parent can help students with limited credit history qualify and get better rates.

 

– **Dealership financing:** Many dealers offer specialized financing programs for students. Rates may be higher but little/no credit history is often OK.

 

– **Personal loans:** Unsecured loans from your bank which can be used for any purpose, including buying a car. Amounts tend to be lower.

Most Canadian lenders will approve student car loans for borrowers with a minimum credit score of 660-680. Those with scores in the good (700+) to excellent (800+) range will qualify for the best rates.

 

Students with no established credit history can also get approved by applying with a qualifying co-signer or through alternative “no credit check” dealer financing, but will pay significantly higher interest rates.

 

Building some credit history before applying for an auto loan will help students access better loan options.



Tips for Canadian students to boost their chances of qualifying for a car loan include:

 

– Having a creditworthy co-signer like a parent or family member

– Putting down a 20% (or higher) down payment

– Working steady part-time income and providing recent pay stubs

– Meeting minimum credit history/score requirements

– Applying for financing through the automaker (e.g. Ford Credit)

– Looking for no credit check “second chance” financing if credit is poor

 

Also be prepared to provide proof of enrollment/registration at a Canadian college or university when applying.

When applying for auto financing as a Canadian student, have these documents ready:

 

– Proof of current enrollment

– Government-issued ID

– Social Insurance Number

– Income verification documents

– Bank account statements

– References (if requested)

– Down payment funds

– Co-signer’s documents (if applicable)

 

Having all required paperwork ready will speed up the application and approval process.

The average interest rate on student auto loans from mainstream lenders like banks and credit unions in Canada tends to fall between 5.99% (for those with great credit) up to 11.99% (for non-prime borrowers).

 

Dealership financing interest rates are higher, often exceeding 15% for buyers with limited/no credit history. Rates above 20% may apply for those with poor credit scores below 600.



Most mainstream lenders in Canada will approve student car loans up to $40,000 for new vehicles and $25,000 for used vehicles. Borrowing limits may be lower for students who apply through non-prime lenders.

 

To qualify for higher loan amounts, having an excellent credit score or adding a co-signer with strong income tends to be required. Keep in mind that financing expensive cars on student budgets can be very financially risky.

Zero-percent interest auto financing in Canada is very rare and tends not to be offered through dedicated student loan programs. Most lenders offering 0% financing will still expect a sizable down payment.

 

That said, some dealerships occasionally run promotions offering no-interest financing for 2-3 years on select new models to qualified buyers, including students. So check whether 0% deals are available on cars you’re considering.

Canadian students seeking auto loans generally have better luck getting approved for used vehicles. Used cars depreciate slower than new models, meaning loans pose less of a default risk for lenders.

 

New cars also come with higher monthly payments and more expensive auto insurance premiums – something to carefully weigh against budgets. Ultimately both new and used vehicles have their pros and cons for student buyers.



A good used car price range for Canadian students to target is typically $10,000 to $15,000. Vehicles in this bracket only have a few years of mileage, still have modern safety features, and won’t quickly depreciate in value – making financing more accessible.

 

Less expensive used cars often have questionable reliability and more expensive used cars run higher risks of negative equity (owing more than it’s worth) later on.



The most affordable vehicles for Canadian students to insure generally tend to be:

 

– Subcompact/compact sedans and hatchbacks

– Some small crossover SUV models

– Minivans

– Mid-size sedans

 

Avoid insuring luxury vehicles, sports cars or large pick-up trucks, as premiums will be very high for under 25 drivers. Always get quotes before buying any car.

Yes, gap insurance is highly recommended when financing vehicles as a student. It covers the “gap” between what a totaled/stolen vehicle is worth and what is still owed on the loan.

 

Without gap coverage, students could end up still having to repay potentially thousands of dollars on a vehicle they no longer possess. The premium cost is usually minimal compared to the benefit and protection.

Typical repayment terms on Canadian student auto loans range from 36 to 72 months for new cars and 24 to 60 months for used vehicles. Longer terms (up to 84 months) may also be offered for those who qualify.

 

Aim for the shortest term you can afford each month. Stretching loans beyond 60 months substantially increases interest paid over the life of the loan.

Yes, responsibly making on-time payments on a student auto loan is an effective way to build and establish Canadian credit history. After 12 months of consistent payments, you should see a nice improvement in your credit score.

 

Just be sure to not take on debt that is beyond your means. Missed loan payments will damage your score.



The best rates on Canadian student auto loans will generally come from:

 

– Your own bank or credit union

– Credit unions like Coast Capital Savings

– Major banks e.g. RBC, TD Canada Trust

– Credit-building programs like KoraDrive

 

Shopping rates from multiple lenders helps ensure you get the most competitive interest rate.

In Canada, “guaranteed approval” auto financing should be avoided by students as it often means predatory terms and sky-high interest rates exceeding 35%. Reputable lenders will never promise guaranteed approvals.

 

That said, programs like KoraDrive and CAR2GO do advertise high approval odds for student buyers based on predictable eligibility criteria. But final rates/terms will vary case-by-case.



Savings off MSRP that Canadian students can take advantage of when buying new cars include:

 

– Special graduate discounts e.g. Grad Benefit Offer

– First-time buyer rebates

– Special low finance rates from dealers

– Customer cash incentives from automakers

– Student-exclusive bonus offers

 

Incentives can save $500 up to $3000 or more if stacked. Always ask what deals apply to students.



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